U.S Code last checked for updates: Jun 18, 2024
§ 375b.
Extensions of credit to executive officers, directors, and principal shareholders of member banks
(1)
In general
(2)
Preferential terms prohibited
(A)
In general
A member bank may extend credit to its executive officers, directors, or principal shareholders, or to any related interest of such a person, only if the extension of credit—
(i)
is made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions by the bank with persons who are not executive officers, directors, principal shareholders, or employees of the bank;
(ii)
does not involve more than the normal risk of repayment or present other unfavorable features; and
(iii)
the bank follows credit underwriting procedures that are not less stringent than those applicable to comparable transactions by the bank with persons who are not executive officers, directors, principal shareholders, or employees of the bank.
(B)
Exception
Nothing in this paragraph shall prohibit any extension of credit made pursuant to a benefit or compensation program—
(i)
that is widely available to employees of the member bank; and
(ii)
that does not give preference to any officer, director, or principal shareholder of the member bank, or to any related interest of such person, over other employees of the member bank.
(3)
Prior approval required
A member bank may extend credit to a person described in paragraph (1) in an amount that, when aggregated with the amount of all other outstanding extensions of credit by that bank to each such person and that person’s related interests, would exceed an amount prescribed by regulation of the appropriate Federal banking agency (as defined in section 1813 of this title) only if—
(A)
the extension of credit has been approved in advance by a majority vote of that bank’s entire board of directors; and
(B)
the interested party has abstained from participating, directly or indirectly, in the deliberations or voting on the extension of credit.
(4)
Aggregate limit on extensions of credit to any executive officer, director, or principal shareholder
(5)
Aggregate limit on extensions of credit to all executive officers, directors, and principal shareholders
(A)
In general
(B)
More stringent limit authorized
(C)
Board may make exceptions for certain banks
(6)
Overdrafts by executive officers and directors prohibited
(A)
In general
(B)
Exceptions
Subparagraph (A) does not prohibit a member bank from paying funds in accordance with—
(i)
a written preauthorized, interest-bearing extension of credit specifying a method of repayment; or
(ii)
a written preauthorized transfer of funds from another account of the executive officer or director at that bank.
(7)
Prohibition on knowingly receiving unauthorized extension of credit
(8)
Executive officer, director, or principal shareholder of certain affiliates treated as executive officer, director, or principal shareholder of member bank
(A)
In general
(B)
Exception
The Board may, by regulation, make exceptions to subparagraph (A) for any executive officer or director of a subsidiary of a company that controls the member bank if—
(i)
the executive officer or director does not have authority to participate, and does not participate, in major policymaking functions of the member bank; and
(ii)
the assets of such subsidiary do not exceed 10 percent of the consolidated assets of a company that controls the member bank and such subsidiary (and is not controlled by any other company).
(9)
Definitions
For purposes of this section:
(A)
Company
(i)
In general
(ii)
Exceptions
The term “company” does not include—
(I)
an insured depository institution (as defined in section 1813 of this title); or
(II)
a corporation the majority of the shares of which are owned by the United States or by any State.
(B)
Control
A person controls a company or bank if that person, directly or indirectly, or acting through or in concert with 1 or more persons—
(i)
owns, controls, or has the power to vote 25 percent or more of any class of the company’s voting securities;
(ii)
controls in any manner the election of a majority of the company’s directors; or
(iii)
has the power to exercise a controlling influence over the company’s management or policies.
(C)
Executive officer
(D)
Extension of credit
(i)
In general
A member bank extends credit to a person by—
(I)
making or renewing any loan, granting a line of credit, or entering into any similar transaction as a result of which the person becomes obligated (directly or indirectly, or by any means whatsoever) to pay money or its equivalent to the bank; or
(II)
having credit exposure to the person arising from a derivative transaction (as defined in section 84(b) of this title), repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction between the member bank and the person.
(ii)
Exceptions
(E)
Member bank
(F)
Principal shareholder
The term “principal shareholder”—
(i)
means any person that directly or indirectly, or acting through or in concert with one or more persons, owns, controls, or has the power to vote more than 10 percent of any class of voting securities of a member bank or company; and
(ii)
does not include a company of which a member bank is a subsidiary.
(G)
Related interest
A “related interest” of a person is—
(i)
any company controlled by that person; and
(ii)
any political or campaign committee that is controlled by that person or the funds or services of which will benefit that person.
(H)
Subsidiary
(10)
Board’s rulemaking authority
(Dec. 23, 1913, ch. 6, § 22(h), as added Pub. L. 95–630, title I, § 104, Nov. 10, 1978, 92 Stat. 3644; amended Pub. L. 97–320, title IV, §§ 410(e), 422, Oct. 15, 1982, 96 Stat. 1520, 1522; Pub. L. 102–242, title III, § 306(a)–(h), Dec. 19, 1991, 105 Stat. 2355, 2357–2359; Pub. L. 102–550, title IX, § 955, title XVI, § 1605(a)(10), Oct. 28, 1992, 106 Stat. 3895, 4086; Pub. L. 103–325, title III, § 334(b), Sept. 23, 1994, 108 Stat. 2233; Pub. L. 104–208, div. A, title II, § 2211, Sept. 30, 1996, 110 Stat. 3009–410; Pub. L. 111–203, title VI, § 614(a), July 21, 2010, 124 Stat. 1614.)
cite as: 12 USC 375b